Question

The XYZ Company produces a single product: very large, hand stitched national flags for the Peoples’ Liberation Army.   Each year XYZ sells around 40,000 flags to the PLA.

In 20×2, XYZ had budgeted production of 40,000 flags. Each flag requires 2.8 square meters of cloth, the only direct material. The budgeted cost of the cloth is $1.20 per square meter. All emblems on the flag are stitched by hand, a time consuming process. Budgeted direct labor time for each flag is 4.2 hours. The budgeted cost of direct labor is $16/hour.

Manufacturing Overhead (MNFG OVHD) is allocated to the product based on machine hours. 0.8 machine hours are budgeted for the production of each flag. Variable MNFG OVHD is budgeted at $3.60 per machine hour. Fixed MNFG OVHD is budgeted at $35,200 for the year.

During 20×2, XYZ produced 38,500 flags. They purchased 116,000 square meters of cloth at a total cost of $141,520 and they used 109,500 square meters in production. XYZ used 160,500 direct labor hours at a total cost of $2,425,000 and 36,000 machine hours. The actual Variable MNFG OVHD costs incurred were $114,000 and the actual Fixed MNFG OVHD costs incurred were $36,120.
1. The Direct Material Price Variance

2. The direct Material Efficiency Variance

3. The Direct Labor Price Variance

4. The Direct Labor Efficiency Variance

5. The Variable MNFG OVHD Spending Variance

6. The Variable MNFG OVHD Efficiency Variance  

7. The Fixed MNFG OVHD Spending Variance  

8. The Fixed MNFG OVHD production Volume Variance   

9. Present the general journal entry (in good form) needed to record the actual Fixed MNFG OVHD Costs incurred during 20×2.   

10. Present the General Journal Entry needed to record the allocation of Fixed MNFG OVHD to the product during 20×2.

11. Present the General Journal Entry needed at the end of 20×2 to close the Fixed MNFG OVHD accounts                                        

Answer 1

Direct Material variance: . Price Variance => (1.2 - (141,520/116000))*109,500 = 2190 (U) Volume Variance => (38500x2.8 - 109500)x1.2 = 2040 (U) Direct Labor Variance: . Labor rate Variance = (16- (2425,000/160500))*160500 = 143,000 (F) Labor efficiency Variance: (38500x4.2 - 160500)x16 = 19,200 (F) Variable Overhead Variance: Spending Variance: (3.6 - (114000=36000))*36000 = 15,600 (F) • Volume Variance: (38500x0.8-36000)x3.6 = 18720 (U) Fixed Overhead Variance: • Spending Variance: (35,200 - 36120) = 920(U) Efficiency Variance:|(35200/40,000x38500)-35,200 = 1320(U)

9,10,11 Jounral Entries

Fixed Manufacturing Overhead Dr	36,120
To Cash (or expense or Accounts Payable)		36,128
(Actual Overhead incurred)
Work in process Dr	33,880
To Manufacturing Overhead		33880
(Applied based on budgeted)
Fixed Manufacturing Overhead Volume Variance Dr	1320
Fixed Manufacturing Overhead Spending Dr	920
To Fixed Manufacturing Overhead		2240
Cost of Goods sold (Or Work in Process) Dr	2,240
To Fixed Manufacturing Overhead Volume		1320
To Fixed Manufacturing Overhead Efficiency variance		920